Customer focus – a nice way to say tunnel vision

Any powerful idea with wide application always carries a danger – the danger that people will begin to assume that it is a panacea, and fail to see its inherent limits. In marketing, the best example of such a brilliant idea stretched too far is “customer focus”.

Customer focus – now often fashionably renamed as “insight” – is widely regarded as the sine qua non of marketing success. The reasoning runs that the best and deepest insights open the way to the most incisive and decisive actions, which leads to market success. Who can possibly disagree?

One of the most powerful challenges to this conventional wisdom comes from Professor Clayton Christensen, of Harvard Business School. His books, The Innovator’s Dilemma and The Innovator’s Solution, warn that too much customer focus amounts to little more than a post-dated corporate suicide note. Companies that focus too hard on their existing customers routinely ignore new market entrants, arriving with new ideas and new offerings.

Typically, Christensen observes, these new entrants’ offerings are undeveloped, inferior to the existing market leader in some way or other, with a different set of attributes appealing to a different market segment. If the existing incumbent polls its existing customers, they profess to be unimpressed. So the incumbent fails to see the new entrant as a threat.

But the new entrant then uses its foothold in the market to fine-tune, perfect and expand its offering, until it has a fully fledged alternative to the market leader’s product. A classic example is Honda’s attack on the Western motorcycle market. When it appeared, the entry-level Honda 50 – a tin can powered by a hairdryer – seemed utterly laughable to both incumbent producers and their existing customers. But Honda found a market for its tin can, and then set about producing ever bigger, better bikes – eventually driving its erstwhile rivals into irrelevance. Something similar happened with Canon and Xerox in the photocopying market, and Wal-Mart and the US department stores. Indeed, as Christensen points out, the pattern seems to be repeated over and over.

Another classic drawback of focusing on customers is that it encourages companies not to focus on non-customers. Non-customers fall into two broad categories: those who would be attracted to your product or service if only you got it right for them; and completely new markets, with needs which no one has addressed before. Ebay and its new marketplaces are an example of the latter.

As Peter Drucker wrote five years ago: “Non-customers are as important as customers, if not more important: because they are potential customers. There are very few institutions which supply as a large a portion of a market as 30 per cent. In other words, there are very few institutions where the non-customers do not amount to at least 70 per cent of the potential market. And yet very few institutions know anything about the non-customers – very few of them even know that they exist, let alone know who they are. Yet,” he added, anticipating Christensen’s research, “it is with non-customers that changes always start.”

Fascinatingly, research by Chan Kim and Renée Mauborgne at the Insead Business School suggests that historically – while the vast majority of market introductions are basically tweaks on existing products and services – those “value innovations” that create genuinely new market spaces account for over 60 per cent of all corporate profits. In other words (almost by definition) real innovation focuses on non-custom – things people are not buying from you. Another drawback of the customer focus mantra is the way we interpret it. After all, what is a customer? A customer is someone who buys what we make. So what are we doing when we focus on our customers? We are focusing on what we make. In other words, in far too many companies, the rhetoric of customer focus (and of “brand building”) is little more than yesterday’s product-centric mindset dressed up as good marketing. As Professor Malcolm McDonald points out, very few companies define their markets in terms of people’s needs. Instead, they routinely define markets in terms of what they make, whether it’s mortgages or lager.

In addition, a focus on the customer doesn’t necessarily lead to a focus on the customer’s benefit. A hunter focuses on his prey in order to kill it more efficiently. Some marketing strategies focus on the customer not in order to add more value, but in order to find the best way of persuading them to hand over cash for less-than-good-value products or services. Look at financial services in the UK, for instance.

Dominant slogans tend to be linked to particular historical eras. Looking back, “customer focus” really took off with the loyalty bandwagon. The loyalty brigade had a good point: if you see marketing only in terms of customer acquisition – when you also have a leaking bucket of high customer defection rates – then you will end up running to stand still. Customer focus helped to redress the balance.

But there’s a positive side to the old customer acquisition mindset. It is outward-looking and expansive. It’s entrepreneurial – looking for growth, encouraging innovation. That’s the exact opposite to the dominant mood of most companies in recent years, which has been inward-looking, defensive, conservative, risk-averse and focusing on cost.

So here’s a suggestion. At one level, customer focus is a basic tenet of marketing that we ignore at our peril. But it can also mislead and misguide us. So the next time somebody repeats the old mantra, why not examine the actual content (and context) of what they are suggesting?

Are they ignoring new market entrants because customers aren’t defecting to them quite yet? Ignoring people who have rejected their offerings? Turning their back on genuine innovation that will attract new customers? Or, perhaps, focusing on fleecing customers rather than adding value? Each of these dangers lurk within that little phrase, if and when it is uncritically applied.

Alan Mitchell’s new book, The New Bottom Line: Bridging the Value Gaps that Are Undermining your Business, is published by Wiley

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